Other parts of this series:
- ESG Regulatory Newsletter: February 2022
- ESG Regulatory Newsletter: March 2022
- ESG Regulatory Newsletter: April 2022
- ESG Regulatory Newsletter: May 2022
- ESG Regulatory Newsletter: June 2022
- ESG Regulatory Newsletter: July 2022
- ESG Regulatory Newsletter: August 2022
- ESG Regulatory Newsletter: September 2022
Welcome to the North America ESG Regulatory Newsletter! The goal of this newsletter is to inform practitioners about current and upcoming ESG regulations, and to provide other information helpful to navigating the rapidly evolving ESG regulatory landscape.
Trending Topics (in Collaboration with Fintech Studios)
President Biden’s signing into law of the Inflation Reduction Act of 2022 on August 16th was a significant and long anticipated step for the Administration’s legislative agenda after the Build Back Better Act failed to gain enough support from the Senate earlier this year. The bill provides significant investments in energy security, climate change, healthcare offset through tax increases, revenues expected from additional IRS enforcement, and prescription drug pricing reform.
North America Regulatory Updates
CALIFORNIA AIR RRESOURCES BOARD (CARB)
What’s happening? The CARB voted to approve the Advanced Clean Cars II rule, which was originally proposed in April 2022 . The regulations will require 35% of new cars, SUVs, and small pickups sold in California to be zero-emission starting in 2026, increasing to 51% of new car sales in 2028, 68% in 2030, and 100% in 2035. The rule is more ambitious than President Biden’s goal for half of new cars and trucks sold by 2030 to be electric and other zero-emissions vehicle, and is intended to contribute to the meeting of California’s carbon neutrality targets.
Timing: Announced 8/25/2022
GOVERNMENT OF CANADA
What’s happening? The Government of Canada signed agreements with leading automakers Mercedes-Benz and Volkswagen. The agreements are aimed at enhancing collaboration and promoting investments in electric vehicle (EV) and battery supply chains and manufacturing in Canada.
Type: Memorandum of Understanding (MoU)
Timing: Announced 8/23/2022
Read more: Here
What’s happening? The House of Representatives introduced the Aviation Emissions Reduction Opportunity Act (AERO Act). The bill was first introduced into Congress on November 1, 2021, to establish an alternative fuel and low-emission aviation technology program, among other things. If enacted, it is expected to build upon the refundable blenders tax credit for producers of SAF included in the Inflation Reduction Act, requiring the Department of Transportation to award competitive grants for projects in the U.S. that support the production and deployment of sustainable aviation fuel (SAF) or the development of low-emission aviation technologies.
Timing: Introduced 8/16/2022
What’s happening? On August 16th, President Biden signed the Inflation Reduction Act, codifying into law a major package of climate, energy, health care, and tax legislation. The new law includes the U.S.’ largest set of climate-focused investments to date, allocating roughly $369 billion in incentives for energy and climate-related programs, including, among others, 1) tax credits for clean sources of electricity, clean vehicles, clean fuels, energy storage, and carbon sequestration; 2) tax rebates and credits to reduce household energy costs; 3) tax credits and grants for clean manufacturing and investments in low carbon materials; 4) grant funding for pollution reduction and environmental justice programs; and 5) expansion of the Energy Department’s loan program for clean energy and automotive projects and businesses.
Timing: Announced 8/16/2022
What’s happening? The House of Representatives introduced the United States-Ecuador Partnership Act of 2022 to strengthen the bilateral partnership between the United States and Ecuador in support of democratic institutions, the rule of law, sustainable and inclusive economic growth, and conservation.
Timing: Announced 8/12/2022
Read more: Here
What’s happening? The Biden Administration announced the launch of the Climate Smart Buildings Initiative, which aims to modernize Federal buildings through public-private partnerships. According to the Administration, the initiative is expected to create nearly 80,000 jobs and up to 2.8 metric tons of greenhouse gas (GHG) emissions annually by 2030 and is an essential part of President Biden’s Federal Sustainability Plan, which sets ambitious climate-related goals for the Federal Government.
Timing: Announced 8/3/2022
Read more: Here
INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) FOUNDATION
What’s happening? The IFRS Foundation completed consolidation with the Value Reporting Foundation (VRF), which houses the Integrated Reporting Framework and the SASB Standards. The consolidation follows commitments made at COP26 to support development of a comprehensive global baseline of sustainability disclosures.
Type: Global standards
Timing: Announced 8/1/2022
Read more: Here
Spotlight topic: Responsible retail – ESG in fashion
What is it: The fashion industry also holds considerable social and environmental impacts, as it directly or indirectly employs roughly 1 in 6 people worldwide, and contributes to an estimated 8% of global greenhouse gas (GHG) emissions.
Accenture research conducted in 2020, including nearly 9,000 consumers in 20 markets around the globe, showed that consumers are prioritizing ethical and sustainable purchasing, with 61% of consumers surveyed stating that they have shifted to making more environmentally friendly, sustainable, or ethical purchases, and 89% stating they are likely to continue doing so. This shift poses challenges and opportunities for the fashion industry in addressing upstream and downstream socio-economic and climate impacts.
Select Federal Regulations and Notable Developments:
- In June 2022, the Uyghur Forced Labor Prevention Act (UFLPA) went into effect. The UFLPA was originally enacted in December 2021, aiming to combat forced labor in places where genocide and crimes against humanity are widely suspected to be ongoing, such as the Xinjiang Uyghur Autonomous Region. Among its mandates, the UFLPA tasked the Department of Homeland Security-led Forced Labor Enforcement Task Force to develop a strategy to prevent the importation of goods mined, produced, or manufactured wholly or in part with forced labor in the People’s Republic of China.
- In May 2022, U.S. Senator Kirsten Gillibrand (NY) introduced The Fashioning Accountability and Building Real Institutional Change (FABRIC) Act, proposing new workplace protections and manufacturing incentives. If passed, the bill would amend the Fair Labor Standards Act of 1938 to create worker protections such as requiring piece-rate pay be replaced with hourly pay, joint workplace accountability standards for retail brands and their manufacturing partners, and establish a national registry of garment manufacturers through the Department of Labor.
- In January 2022, The Fashion Sustainability and Social Accountability Act (The Fashion Act) was referred to the New York Senate’s Consumer Protection Committee. If passed, The Fashion Act would require qualifying fashion companies doing business in NY to disclose median wages for workers and make other environmental disclosures.
- In September 2021, California Gov. Gavin Newsom signed into law the Garment Worker Protection Act, which aims to protect workers from abusive labor practices. The law prohibits paying workers based on piece work, expands on liability for wage and hour violations, and requires garment manufacturers, contractors, and brand guarantors to keep all documentation related to garment manufacturing performance for four years.
Select Industry Guidance:
- In May 2022, the Value Reporting Foundation (VRF) published updates to the Sustainability Accounting Standards Board (SASB) Standard for the Apparel, Accessories & Footwear Industry, including revised metrics and technical protocols related to the Raw Materials Sourcing disclosure topic. SASB standards are designed to provide an industry-specific set of climate-related disclosure topics and associated metrics. As of August 2022, the VRF and the SASB standards have evolved into the consolidated International Sustainability Standards Board (ISSB), part of the International Financial Reporting Standards (IFRS) Foundation. The ISSB has committed to leverage and further develop the industry-based SASB standards.
- In November 2021, the United Nations Framework Convention on Climate Change (UNFCCC) developed the Fashion Industry Charter for Climate Action. Charter signatories commit to support delivery of various targets and initiatives, including reducing the fashion industry’s emissions footprint to net zero by 2050.
- In November 2021, the World Resources Institute (WRI) and the Apparel Impact Institute developed a Roadmap to Net Zero: Delivering Science-Based Targets in the Apparel Sector. The roadmap comes after WRI developed science-based targets guidance for the Apparel and Footwear sector on behalf of the Science Based Targets initiative (SBTi). The roadmap and guidance provide a blueprint for companies to set science-based targets and reduce the fashion industry’s emissions footprint to net zero by 2050.